When Mortgage Refinancing is Not a Good Idea?

mortgage refinancing

Homeowners may find it appealing to apply for mortgage refinancing to reduce their expenses, but there are instances when this is not a good idea. Your current situation will determine whether mortgage refinancing will save you a lot of money or will be a source of problems. It is understandable that the lower interest rate will appeal to you since it can reduce your monthly payments, but you need to understand what the risks are.

Here are a few that are worth mentioning.

1· Extending loan term. Refinancing your mortgage means you will be extending the length of your existing loan. A good example here is applying for a new 30 year loan to replace your existing 30 year loan where the payments are going to be calculated to last three decades. On the other hand, if your current loan has only 10 or 20 years left, mortgage refinancing will only cause your interest rates to go up as you extend the term of your loan.

2· Debt consolidation. Applying for home equity for debt consolidation may also work so that you are able to pay off your other debts. However, if you are doing this just to free up space in your credit card and use it to buy more stuff that will put you in more debt since you are not exactly saving money, but rather you are just moving your debt around and are not really paying anything off. Another downside here is the chance that you may not be able to pay off your larger loan which puts your property at risk of foreclosure.

3· Closing costs. Mortgage refinancing will cost you money even if the loan that you are checking out is marketed as “no closing cost” type of loan. You will still be paying the fees for your new lender, as well as the cost of procuring required documents like credit checks, legal documents as well as filing, appraisals, and so on. If this is the case, you should study what no closing cost refinance loans are all about first before making any move.

These are just a few downsides to mortgage refinancing in Canada which you need to take into account if you are planning on applying for one. Although refinancing your mortgage may mean getting extra funds for your personal needs, the risk that comes with it is worth taking note of especially since you are putting your current mortgage on the table.

You can easily apply for your mortgage refinancing with Canadian Cash Solutions now.

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